According to the Liquidity Preference Theory if t
According to the Liquidity Preference Theory, if the yield curve is upward sloping, expectations of short-term rates in the future:
A. must be rising.
B. must be declining.
C. can either be rising or declining.
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2024-11-14 20:04:54
Ans:C;Case 1: if the market believes short-term interest rates will risk in the future, adding a liquidity premium to the resulting upward sloped yield will keep the upward sloping trend of the yield curve;Case 2: even if the market believes short-term interest rates will decline in the future, adding a liquidity premium to the resulting downward sloped yield curve can result in an upward sloping yield curve;Therefore, C is correct.
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